Sunday, December 14, 2008

The world is a printing press

Every country in the world is essentially on a paper money fiat system of currency, which is why it seems so normal and gold seems so kooky to some. Now that times are getting really bad, governments of these countries have started their most aggressive campaigns to re-ignite inflation and avoid deflation. Every country is aggressively lowering interest rates, handing out money/giving tax breaks/employing fiscal "stimulus," and many are propping up and/or bailing out banks with money they don't have.

All this global money printing of course has long-term consequences and makes the currency game a mug's one: saying the U.S. Dollar is strong is a relative thing, because you are comparing one piece of mark-to-fantasy paper with another, and they are ALL GOING TO BE DECLINING IN VALUE now that this "war on deflation" has been officially waged. Yes, the U.S. Dollar will benefit for a while because it is the reserve currency of the world and the currency of the world's senior economy during a deflationary crash, but this is a relative benefit. All paper is suspect when the poop hits the fan.

If you don't believe me, think about this: if everyone went and took their money out of their bank tomorrow, every bank in the country would not only immediately fail, but would not have enough actual money on hand to meet even 10% of the customers' demands for their money. How is this sane or rational? Your money is not available because the banks don't have it. The 1-2 bank failures occurring every week or two aren't even interesting enough to make the news any more.

When times are good, this paper system matters not. But now that Great Depression II has started, all bankers' and politicians' promises are more suspect than ever and having hard pieces of physical cash paper in your possession to cover 1-2 months of expenses is a good idea. State and federal imposed bank "holidays" were used many times during the first Great Depression and we can expect to see them again. Trust me, they won't be announced in advance!

For longer term savings, gold is the only currency that makes sense as a long term store of wealth. Politicians can't debase it (though they villify and ridicule it) because it can't be created out of thin air. Its scarcity is what creates its value. Gold's day in the sun is coming soon. Buy it now while it's still cheap and hold it outside the system to protect a portion of your wealth.

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